I’ve always had to fill out both FAFSA and CSS Profile, but this year it’s FAFSA-only.
DH owns a very small subchapter S which provides some W-2 income and some K-1 distributions. Only one employee – himself. I know where to report the W-2 income on the FAFSA, but now I can’t see where to report the K-1 distribution (1040 line 8, which is from Schedule 1 Line 10) on the FAFSA. I know where to report it on the Profile, but what am I not seeing on the FAFSA?
The amount is reported more or less incognito, because it’s part of the AGI. It’s not considered income from work, so it’s not included in those questions.
Questions 83 and 84 ask about earnings (wages, salaries, tips, etc.) in 2021. Answer the questions whether or not a tax return was filed. This information may be found on the W-2 forms or by adding up the following items: IRS Form 1040—line 1 (or IRS Form 1040-NR—line 1a) + Schedule 1—lines 3 + 6 + Schedule K-1 (IRS Form 1065)—Box 14 (Code A). Report the information for the parent listed in questions 57-60 in question 83 and the information for the parent listed in questions 61-64 in question 84. If a tax form line’s value is negative, treat it as a zero in your calculation.
If the K-1 isn’t for Form 1065, then I would default to what kelsmon says - the K-1 income will just fold into the AGI.
Any thoughts on whether it is better to take money as W-2 salary or K-1 distribution, when factoring in payroll taxes and financial aid considerations? Or is there no difference?
That’s assuming there is a choice, but my understanding is that once an appropriate salary has been paid, there is a choice for any excess to be either W-2 or K-1.
I agree not to report 1120s K-1 on the FAFSA as that amount has already flowed through to the 1040.
As for W-2 vs business income, for FA less of the W-2 income will be considered as available for college because you’ve paid social security and Medicare tax. However, you have paid social security and Medicare tax…
With the pass-through deduction for qualified business income most owner-employees get a pretty significant deduction on business income, far outweighing any FA benefit derived from taking W2 income. Personally I’d take the lowest reasonable W2 salary and maximize business income as it’ll give you more net to pay for college/life. Look into the QBI deduction to see how it works for you.